Microsoft's Johnson: What His Leaving Means For Company

In last week's earnings report, Microsoft's online business unit stuck out like a sore thumb.

With so much attention, and so much pressure on this company to stake its claim on the web, the unit did a paltry $850 million and lost a staggering $455 million in the process.

Kevin Johnson, the president of the division, suddenly and surprisingly resigned late Wednesday, taking over Juniper Networks, and leaving Microsoft's online business in more disarray than it was already in. If anything points to just how important a lock-up is with Yahoo, it's last week's Microsoft's earnings, and KJ's departure last night.

And here in Redmond, Washington, at Microsoft's global headquarters, the Johnson news is top of mind. Microsoft is preparing to meet with Wall Street at the company's Financial Analyst Meeting. Now, Microsoft will be forced to deviate--in a serious way--from its prepared agenda.

Johnson was widely seen as a potential heir apparent to CEO Steve Ballmer, who isn't going anywhere any time soon. The writing was on the wall, and Johnson took the hint.

That leaves Ballmer now to focus on a division he probably didn't want to focus on above and beyond the normal questions surrounding the Yahoo saga. Which is even more uncomfortable-ness for a CEO who can't really afford much more.

Consider the memo that Ballmer sent to his troops this morning, detailing his priorities, mapping out where Microsoft goes from here. There's the typical rhetoric surrounding competition with Google, Ballmer's views on Johnson's departure. But the part that jumped out at me was the attention paid to Apple.

Ballmer points out that Microsoft outsells Apple30 to 1, but elevates the competition to a new level. He writes: "In the competition between PCs and Macs, we outsell Apple 30-to-1. But there is no doubt that Apple is thriving. Why? Because they are good at providing an experience that is narrow but complete, while our commitment to choice often comes with some compromises to the end-to-end experience. Today, we’re changing the way we work with hardware vendors to ensure that we can provide complete experiences with absolutely no compromises. We’ll do the same with phones—providing choice as we work to create great end-to-end experiences."

It's an interesting take on Microsoft's position in the marketplace as it relates to Apple. Microsoft is indeed losing marketshare to Apple (2.5 million Macs a quarter start to add up!) because of all the well-documented problems and challenges with Windows Vista. But rather than focus on Vista's shortcomings, Ballmer spotlights the strengths of the Mac.

Bottomline: Microsoft runs the risk of being dead money for awhile, unless Ballmer can come up with something big, and exciting. And not just a deal for Yahoo. Shares have moved nowhere since he's been CEO. With earnings last week, and a squishy outlook, there's no indication that they're going anywhere anytime soon.

That's the backdrop against which Ballmer and team will address analysts today. Not a bad news story to tell, not a good news story to tell. And hardly "just right" either.